The asset-backed securities market showed a slow start last week as traders remained weary of the Federal Reserve Bank rate increases.
The general tone was one of anticipation. "Everyone's been watching to see what happened with the Fed," explained one trader.
Both the discount and federal funds rates were increased 25 basis points, and, according to Fitch IBCA, the bank "maintained its neutral stance toward future policy."
"Now that the Fed acted," said a trader, "I think we'll see some more action. Liquidity will certainly return to the market to some degree."
Though things were quiet on the whole, auto-backed bonds priced at a combined $3.4 billion. The World Omni Financial Corp., a subsidiary of JM Family Enterprises, issued a $1 billion offering, marking the company's first issuance since November 1998. The deal was managed by Merrill Lynch & Co., and co-managed by Chase Securities Inc., Banc of America Securities, First Union Capital Markets and Credit Suisse First Boston.
According to Tucker Allen, vice president and corporate treasurer at World Omni, the pricing went "very well, extremely well." (see related story, page 3)
General Motors Acceptance Corp. issued an auto-backed deal, a $1.2 billion offering managed by Credit Suisse First Boston and J.P. Morgan. The deal was structured as a soft bullet, the first of its kind for auto-backeds.
"This issuance provides cash flows that are similar to other fixed income benchmarks such as credit card asset-backed securities, corporate bonds and treasuries," said Michael Raynes, a director at the CSFB's asset finance group. "There are significant advantages of soft bullet issuances, and other issuers will most likely follow."
Smaller auto-backed bond deals included Nissan Motor Co. and Onyx Acceptance Corp., pricing at $732 million and $400 million respectively. For Nissan, Merrill Lynch managed the deal in conjunction with Banc of America, Chase Securities and J.P. Morgan. "The deal went quite well, not massively over subscribed, but as expected," said a source at Nissan.
As for Onyx, Chase Securities managed the deal with co-managers Salomon Smith Barney and Merrill Lynch. "It priced a little wider than we originally thought," said Mich Gellman an investor relations official at Onyx.
Meanwhile, Green Tree Financial Corp. re-entered the ABS market last week with a $2 billion issue backed by manufactured housing loans. Lehman Brothers led the deal, co-managed by Merrill Lynch and J.P. Morgan. "We were very pleased with the transaction," said Jim Rosensteele, spokesperson for Green Tree. "It was over-subscribed. There seemed to be demand."
Though he provided no specifics on Green Tree's next manufactured-housing deal, "We have a normal program planned for the balance of the year," Rosensteele said. Generally, Green Tree issues at least one, sometimes two, deals quarterly, said Rosensteele.
According to Fitch, the coming weeks will show increased activity in the asset-backed markets, particularly credit-card and auto-loan sectors. Though the Fed's rate increase quieted things down, the change is not expected to have any negative impact on the ABS market, according to Michael Dean of Fitch.
"There's going to be continued large supply, because everyone's trying to get it done before the fourth quarter," said one trader, who beat the Y2K drum . "People are trying to get through the key hole before it locks."